Southern (NYSE: SO) subsidiary Georgia Power acknowledged Aug.31 that projected in-service dates for the nation’s first new nuclear reactor units in more than 30 years have slipped a few months and this could eventually result in contractor-related cost increases.
Georgia Power and its ownership group now expect that Vogtle Unit 3 will become operational in November 2016 rather than April 2016. Likewise, Unit 4 is now expected to go into service in November 2017 rather than April of that year.
That extra seven months could eventually add additional cost to the project, the utility said in a twice-annual report to the Georgia Public Service Commission. Contractors are seeking $425m in additional costs as a result of the delay and the issue is now in settlement negotiations.
For now, however, cost projections continue to track approximately 4% below the original certified projection a few years ago, Georgia Power said. Currently, Georgia Power’s projected total investment for the facility is more than $6.2 bn. It was originally expected to be more than $6.44 bn.
The Georgia utility filed a six-month progress report on Vogtle with the Georgia PSC. The seventh Vogtle project report covers the first six months of 2012 and asks the PSC to approve the $263m in expenditures made through June 30.
Talks continue on $425m contractor cost issue
The schedule has been altered to reflect delays in the approval process and Georgia Power concedes that the schedule delay could result in higher contractor costs. Shaw Group (NYSE: SHAW) and Westinghouse Electric and Shaw lead the vendor team for the project, which includes installation of two Westinghouse AP 1000 units.
The contractor team has sought $425m in additional costs because of certain approval delays, Southern CFO Art Beattie told a Barclays energy conference Sept. 4 in New York. Southern does not believe it should foot the bill for delays in NRC approval of the Westinghouse design for the AP 1000 reactor.
The vendor contract includes dispute resolution measures, Beattie said, adding that litigation remains a fallback option for the parties.
“We continue with negotiations and the formal dispute process with the Contractor to resolve the ongoing cost and schedule disputes. Once those disputes are resolved, the Owners may conclude that the projected cost should be revised to reflect additional costs – as necessary and prudent – at that time,” the utility said in the filing.
Overall, construction is going “exceedingly well,” Beattie told the Wall Street analysts. Vogtle 3’s reactor vessel should arrive on-site this fall, Beattie said.
On on-site rail system has been built at the complex to help with delivery of heavy components.
Georgia Power is developing the new Vogtle units along with its partners Oglethorpe Power, the Municipal Electric Authority of Georgia (MEAG) and the City of Dalton, Ga. The project represents a $14bn investment, Georgia Power said in its filing.
2,200 workers already busy on new Vogtle units
About 2,200 workers are already working at the Vogtle site, Georgia Power said. Construction of the facility is now more than one- third complete. Assembly of the Unit 4 containment vessel bottom head is ahead of schedule and over 50% complete. The Unit 3 turbine building foundation is over 65% complete,
Even with the later in-service dates, the project costs for Vogtle remains below the original certified projected cost, Georgia Power said.
The Southern subsidiary now says customers will see their rates increase between 5% and 8% due to the new nuclear units thanks in part to a state mechanism that allows Georgia Power to start recouping financing costs while the plant is still in construction. This is known as construction work in progress or CWIP.
“In 2009, when the Commission originally certified the Facility as the best option for customers, the Facility’s “overnight” cost was expected to raise customers’ total rates by approximately 12 percent (without CWIP in rate base) and approximately 9-10 percent (with CWIP in rate base) when it was placed into service. However, because of the effects of the lower cost of nuclear fuel compared to other forms of generation, we also expect customer’s total rates will be 2-4 percent lower than they would otherwise be without the new Facility in service,” Georgia Power said.
In February 2010, Vogtle 3 and 4 received conditional loan guarantee approval form the U.S. Department of Energy. Final approval is still pending and the company hopes to get it by the end of 2012.
NRC issued its new plant licenses for Vogtle units 3 and 4 in February 2012.
Plant operators are counting on the units to have a 60-year operational life. By 2020, the state of Georgia is expected to add more than 1 million new residents, Georgia Power said in its filing.